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* Canadian dollar up slightly against greenback
* Bank of Canada Monetary Policy Report Update in focus
* Bond prices track larger U.S. market lower
By John McCrank
TORONTO, July 17 (Reuters) - The Canadian dollar rose slightly against the U.S. dollar on Thursday ahead of the Bank of Canada's Monetary Policy Report Update, due at 10:30 a.m. (1430 GMT).
Domestic bond prices fell along with the U.S. market on some stronger than expected U.S. housing data.
At 9:24 a.m., the Canadian dollar was at C$1.0010 to the U.S. dollar, or 99.90 U.S. cents, up slightly from C$1.0022 to the U.S. dollar, or 99.78 U.S. cents, at Wednesday's close.
The currency spent the overnight session in a tight range of C$1.0130 and 99.95 Canadian cents.
The Bank of Canada holds a news conference at 11:15 a.m., where investors will be seek insight into its view on topics like inflation, the impact of the U.S. slowdown on Canadian growth and the cooling housing market.
David Watt, senior currency strategist at RBC Capital Markets, said he will watch for a change to the central bank's forecast on oil, which could have broader implications for the Canadian economy and the Canadian dollar.
"It is going to be one of those things where they're going to stress that oil prices are going to stay elevated and stay there for longer than they previously thought and that's going to feed through to some of their discussions going forward," he said.
"Again, that stresses the idea that Canada's terms of trade are going to be higher than the Bank of Canada had originally thought, which in the midst of a slowing economy is something the Bank of Canada might want to tout."
Higher oil and food prices prompted the central bank to raise its forecast for headline inflation to above 4 percent next year for the first time since 2003.
But Watt pointed out that since Canada is a major oil exporter, the higher oil price could support the Canadian dollar and dampen inflation.
On the data front, Statistics Canada said foreign purchases of Canadian securities rose in May to C$10.72 billion, the highest level since the C$11.75 billion recorded in November 2006, as nonresidents invested heavily in bonds.
Canadian investors bought C$6.09 billion worth of securities abroad, focusing on non-U.S. stocks.
Canadian bond prices fell along with the U.S. Treasury market after some U.S. housing data came in stronger than expected, easing concerns about the deterioration of the U.S. housing market.
But Eric Lascelles, chief economics and rates specialist at TD Securities, said the sell-off may be a bit overblown.
"The 9 percent increase in U.S. housing starts is actually all a function of a New York city building code change and builders of multiunit condos trying to sneak in before the deadline," he said, adding that there is a risk of the bond market bouncing back some.
The two-year bond dipped 7 Canadian cents to C$101.17 to yield 3.099 percent. The 10-year bond slid 23 Canadian cents to C$103.97 to yield 3.764 percent.
The yield spread between the two-year and 10-year bond was 66.9 basis points, up from 66.2 basis points.
The 30-year bond fell 30 Canadian cents to C$114.45 for a yield of 4.137 percent. In the United States, the 30-year treasury yielded 4.591 percent.
The three-month when-issued T-bill yielded 2.32 percent, up from 2.28 percent at the previous close. (Editing by Janet Guttsman)